Tax Benefits for Families

Are there any tax breaks available for families of children with disabilities? There are several significant tax benefits available that can be worth hundreds, even thousands of dollars. Some tax benefits continue even after the disabled child reaches adulthood. This article briefly summarizes two of the more significant tax benefits, the Earned Income Credit and the Child and Dependent Care Credit.

(1) The Earned Income Credit (EIC) is a refundable credit available to taxpayers with earned income under $25 760 in 1997 and with a "qualifying child" in their home — if there are two or more qualifying children, $29,290. A "qualifying child" may be a biological child or adopted child, stepchild, or grandchild or foster child. The child must be under age 19 or under age 24 if a full time student. The qualifying child must reside in the taxpayer's home for at least six months (a foster child must be in taxpayer's home for the full calendar year). Temporary absences for camp, hospitalizations, and other reasons do not affect residency.

Taxpayers claiming EIC benefits must file form 1040 or 1040A with Schedule EIC, a separate form that provides the IRS with sufficient information to check eligibility and amount of benefits due. Taxpayers may qualify with any filing status except "married separate". There is no support test; that is, the taxpayer need not show that he has contributed a majority of support for the qualifying child. A maximum credit of $3 656 is available for the 1997 tax year; however, the average benefit will be about $1,200.

(2) The Child and Dependent Care Credit is a non-refundable credit of up to 30% of employment related dependent care expenses. A maximum credit of $720 is available for care of one child, and a maximum credit of $1 440 is available for the care of two or more children. Generally, the child must be under 13, but the age limit is waived for dependents who are disabled and "not capable of self care". In two parent households, both parents must be employed or looking for work in order to qualify for this service.

Expenses for pre-school and after school programs can qualify for the credit. Summer day camp expenses will also qualify, but overnight camp expenses are excluded by the IRS. Taxpayers must identify the care giver and provide the Social Security number or Employer Identification Number. Generally, taxpayers may qualify for and claim both the EIC benefit and the Child Care Credit.

Taxpayers may file an amended return (Form 1040X) to correct overpayment of taxes caused by failure to claim credits for which they were eligible. Generally, taxpayers may file an amended return up to three years from the due date of the return. This means a taxpayer could file an amended return for the 1994 tax year up until April 15, 1998.

The following publications are available without charge from the IRS. You can order paper copies sent via snail mail, download and print, or browse them online.

• Pub. 17, Tax Guide for Individuals;
• Pub. 503, Child & Dependent Care Credit;
• Pub. 596, Earned Income Credit.